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By Bloomberg

Treasury 10-year notes declined for a fourth day, the longest rout in three months, as BlackRock Inc. said the Federal Reserve may raise interest rates sooner than traders expect.

Yields on the benchmark securities reached the highest level in a month before economic reports this week that economists forecast will show fewer jobless claims and stronger retail sales. An improving labor market and signs of inflation argue for the Fed to boost borrowing costs, according to Rick Rieder, BlackRock's chief investment officer of fundamental fixed income in New York. The U.S. is set to sell $61 billion of securities this week starting with three-year notes today.

Supply "is weighing on the market a little bit," said Sean Murphy, a trader in New York at Societe Generale SA, one of 22 primary dealers that trade with the Fed. "It will be choppy as we head into the auction process. We will probably see a little more concession for the three-year note."

Benchmark 10-year yields climbed three basis points, or 0.03 percentage point, to 2.50 percent as of 8:24 a.m. in New York, the highest level since Aug. 5, according to Bloomberg Bond Trader data. The price of the 2.375 percent note due August 2024 fell 7/32, or $2.19 per $1,000 face amount, to 98 29/32.

The last time 10-year notes dropped for four days was in the period ended June 4.

Auction Outlook

The three-year notes to be sold today yielded 1.06 percent in pre-auction trading as investors prepared to bid for $27 billion of the securities today. The last time an auction of this maturity drew such a high yield was April 2011.

At the previous three-year sale in August, investors bid for 3.03 times the amount of debt offered. It was the lowest level since June 2013 at the monthly auctions.

The U.S. also plans to sell $21 billion of 2024 securities tomorrow and $13 billion of 2044 bonds the following day.

Investors who bet against Treasuries this year have been wrong as the market returned 3.8 percent through yesterday, based on the Bloomberg World Bond Indexes. At the start of the year, the winter slowed the economy, while unrest in Ukraine and the Middle East during this quarter increased demand for the relative safety of U.S. debt.

Employers added 142,000 jobs last month, the Labor Department said last week, the fewest this year, after six months of 200,000-plus gains.

Rieder's View

The U.S. labor market is improving even though the August employment report was below expectations, Rieder wrote in his commentary. BlackRock, the world's biggest money manager, distributed the report by e-mail yesterday in the U.S.

Rieder said in August the Fed may raise rates early in 2015, in a Twitter posting. The Fed has kept its benchmark at almost zero since 2008.

U.S. consumer prices rose 2 percent in July from a year earlier, almost double February's level, official data showed on Aug. 19. It's still less than the average for the past decade of 2.4 percent.

Data this week will show U.S. initial jobless claims fell 2,000 to 300,000 last week, according to a Bloomberg News survey before the Labor Department releases the data on Sept. 11. Retail sales gained 0.6 percent in August from the previous month, when they stalled, a separate survey showed before the Commerce Department figures on Sept. 12.

Fed Futures

Thirty-day federal funds futures contracts for delivery in September 2015 yielded 0.525 percent, the first month in which an increase in the Fed target above 0.5 percent is priced in.

"Low Treasury yields suggest the market probably hasn't adequately priced in risk of interest-rate increases," said Robin Marshall, director of fixed income at Smith & Williamson Investment Management in London. "While we don't think bond yields will rise much higher from here as the global growth outlook remains weak, Treasury rates at these levels don't quite reflect improving fundamentals of the U.S. economy."

Treasury market analysts forecast 10-year Treasury rates will climb to 2.89 percent by Dec. 31, based on a Bloomberg survey of banks and securities companies with the most recent predictions given the heaviest weightings. That's the lowest forecast since July 2013 and down from a high this year of 3.43 percent on July 15.